Former banking boss in prison

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The banker responsible for Austria's biggest post-war financial scandal is finally in prison.

Wolfgang Kulterer, the former CEO of the Hypo Alpe Adria state bank, is in prison for six and a half years for embezzlement and fraud.

His sentence was supposed to start last September in Klagenfurt. However a shoulder operation (after a horse riding accident) meant he could apply for a postponement.

In spring, he and his lawyer tried to postpone the sentence again, but judges appeared to have lost their patience and rejected his request.

The jail in Klagenfurt, Carinthia is starting to become something of a 'celebrity prison'. Kulterer has joined Hans-Jörg Megymorez, the former CEO of Carinthian Holding (KLH) and Josef Martinz, the former Carinthian chairman of the conservative Austrian People’s Party (ÖVP), both of whom were jailed for their respective roles in the Hypo scandal.

The Österreich tabloid noted that Kulterer has had to swap his champagne and caviar lifestyle for a menu of noodles and mushroom sauce, a thin mattress and a wash-basin, rather than a luxury en-suite bathroom.

The Hypo bank has become a national bogeyman for a country fed up with the government's failure to resolve the issue.

And its problems have leaked beyond Austria's borders. It's a story that sounds a little like a detective movie from the 1970s - involving money laundering, connections to various mafia groups in south-east Europe, secret party funds, and a chronic lack of accountability.

It all goes back to Jörg Haider, Carinthia's former governor and leader of the far-right Freedom Party of Austria (FPÖ), who died in a car crash in 2008.

The bank was literally his 'personal wallet' and the most successful tool for illegally financing the FPÖ until Haider's death.

Wolfgang Kulterer told Kurier newspaper: "My condemnation in public has been very controlled: I'm guilty because Haider is no longer here".

Many of the bank's hidden transactions were designed and implemented via a “triangle of friends” which included Haider, Kulterer and the former Croatian Prime Minister Ivo Sanader.

The politicians and the bank manager had created the perfect scheme to launder money.

In 2007 the German Bayerische Landesbank (BayernLB) bought a majority share in Hypo and began investing fresh capital. But two years later it was forced to sell Hypo back to the Austrian government to prevent financial collapse. The Austrian government has continued to inject huge amounts of money to save the crumbling institution.

It is expected that between 12 and 19 billion euros of outstanding loans will never be paid back.

To avoid bankruptcy, Austrian taxpayers have had to cover these losses, and the backlash from being told they will foot most, if not all, of the bill for winding down the ailing bank while bearing the brunt of spending cuts has been swift.

A Facebook campaign by a parents' group against school spending cuts shows a hippo - the bank's symbol - flattening a pupil.

Observers, financial experts and politicians have concluded that the affair threatens not only Hypo's creditors, but also Austria's credit rating. Furthermore the close ties Austrian banks appear to have with the country's political parties have been shown to be some of the most opaque in the EU.

More than four years after the state's emergency takeover, Hypo has become a lightning rod for grass-roots criticism of both banks and the government ahead of European elections on May 22nd.